Anomalies remain as advisers adopt charging approach

John Lappin

Investment advisers may well believe we are getting close to the purest version of the RDR.

The 2016 deadline for platforms to stop taking rebate payments from legacy investments is bringing the end of commission a little closer.

Those such as Investment Quorum’s Lee Robertson, who said trail would last only a few years more, are being proved correct – although it is not market forces finishing off trail, but rather regulatory action.

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A regulatory initiative aimed at addressing possible rebate biases and murky deals – real or imagined – between fund supermarkets and fund managers has also had the handy side-effect of ending the moral hazard of advice being skewed by the desire to maintain trail income streams.

In the middle of these changes, the good news is that advisers appear to be coping rather well. Skandia’s research suggests three quarters of advisers will be operating solely on an adviser-charging basis by the middle of 2015.

Even better news may be the fact that in a recent NMG survey of 523 clients who have an adviser, a huge 98 per cent said they will continue to receive advice under the new regime.

We can say – tentatively – that it has not been so much of a leap of faith for clients as some investment advisers had thought. That is what most advisers say anecdotally, too.

Yet, it doesn’t do to be cavalier about this. The change still brings more pressure to bear on some advice businesses. If three quarters of adviser firms will be in a good position regarding adviser charging next year, a quarter may well not be.

Whatever the morality of supposedly unearned trail, cutting it off could hurt. Those old sources of trail being paid on plans taken out by what you might describe as semi-lapsed clients don’t hurt the bottom line.

But even if it feels like it in some quarters, the fact remains that this isn’t a totally pure RDR. For whatever reason, under life wrappers, trail may still be paid, providing it is in return for advice.

Whether that is a matter of semantics or actually a small, minor legacy of the old system, it feels advisable to AC the whole of any advice book. That puts the investment adviser in control, and free from any concerns that the FCA might decide to become even more fundamental in its approach.

There is a final anomaly. Fund firms can pay for advertising and management information from platforms so, bizarrely, further up (or down?) the value chain, cash may be changing hands.

It is quite difficult to envisage how this might operate in the new world. If a consultant arrives from your platform to help iron out some technical issues, will he or she have a few fund prospectuses hidden in the lining of his suit jacket? There is something ever so slightly reminiscent of Private Walker about that.